Editor’s note: This commentary is by John Franco, a Burlington attorney who has been active in health care reform for over 25 years.
[G]ov. Shumlin’s proposal for a 0.7 percent payroll tax to finance health care reform was a bold stroke given the austerity-only pressures to hunker down presented by the current budget circumstances. He correctly understands that it makes more sense to make a modest investment of state-generated resources to leverage even greater additional federal resources. For those who do not recognize this for the profound act of courage that it was, just read a few of Paul Krugman’s op-eds in the New York Times to understand the pervasive grip that wrongheaded cut-our-way-to-prosperity type thinking has had on contemporary policy worldwide.
The heart of the governor’s proposal is that each state dollar invested to raise Medicaid reimbursement rates will leverage $1.10 in federal matching funds, in turn relieving the effects of the Medicaid cost-shift and lowering private insurance premiums by about 5 percent. This leveraging idea is a sound one, but using a reduction in the Medicaid cost shift is a very ineffective way to provide relief in premiums. In other words, the governor’s budget address has the right church, but the wrong pew.
The first problem is that state regulators are powerless in a majority of cases to ensure that Medicaid reimbursement enhancement will translate into lower premiums. More than half of Vermont’s 362,000 privately insured individuals lie beyond their jurisdiction. ERISA self-insurance plans which cover about 110,000 Vermonters are entirely unregulated. Another 82,000 Vermonters are covered either by out-of-state employers, or federal employee and military insurance plans.
Secondly, the approach would do nothing for the premiums paid in the Vermont Health Connect exchange and would cut the federal premium assistance credits otherwise available. Premiums for individuals are capped up to 400 percent of the federal poverty level (which is almost $100,000 for a family of four), ranging from 2.5 percent to 9.5 percent of income. The federal government pays for the full amount of a premium to the extent it exceeds this cap. Using a payroll tax to reduce the cost of premiums in the exchange simply means that the premiums paid by individuals remains unchanged while a portion of the federal support would be relieved dollar for dollar by the state tax. And John Boehner thanks you for it.
The more cost-effective approach is to use this payroll assessment to maximize the drawdown of Obamacare’s federal premium subsidies.
If the proposed 0.7 percent payroll tax were used to supplement state subsidies in the exchange, it could help get about 130,000 Vermonters – almost all of those now insured by small employers — into the exchange.
The first step is to achieve universal health insurance coverage this year. Despite the subsidies, individuals in the exchange on average still pay more than those who get their coverage from work. This gap in affordability is one of the key hurdles in getting more uninsured signed up in the exchange. Vermont needs to close that gap by enhancing its existing premium assistance program. A modest supplemental subsidy will leverage $4 to $5 in federal money for every state dollar invested, compared to the $1.10 per state dollar leveraged by Medicaid.
In 2014 we cut the number of uninsured by almost half. By the end of the February 2015 open enrollment period, the uninsured should be down to about 2 percent. Full coverage can then be affordably accomplished with a supplemental state enhancement of about $6 million. In terms of universal coverage we are at the 2 yard line. Here is our Tom Brady.
Employers with under 50 full-time employees are free to drop health insurance coverage without penalty. Many already have done so – including GOP gubernatorial candidate Scott Milne’s Milne Travel and Lt. Gov. Phil Scott’s Dubois Construction — with their employees “migrating” to individual coverage in the exchange. This replaced the employer premiums they were paying with federal tax credit subsidies going directly to their employees.
This enhancement of state subsidies will also mean even more small employers will choose to similarly drop coverage in favor of their employees getting subsidized individual coverage in the exchange. If the proposed 0.7 percent payroll tax were used to supplement state subsidies in the exchange, it could help get about 130,000 Vermonters – almost all of those now insured by small employers — into the exchange. This would leverage Obamacare the premium tax credits and relieve over $400 million in health care premiums paid by Vermont small employers.
Bottom line – if you want to reduce private health care premiums, then get everyone covered and encourage use of the ACA tax credits in the exchange to get Vermont small employers out of the health insurance business altogether.
Note: Milne Travel employees are enrolled in Vermont Health Connect as an employer-subsidized group, not as individuals, according to the company.
